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The Implications of Multifunctionality on World Commodity Markets: A Preliminary Examination

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By Mollie Woods and Lorie Srivastava

Domestic support for agriculture is being carefully scrutinized under continuing reform of the World Trade Organization Agreement on Agriculture. The authors begin by detailing the differences between “amber” and “green” box policies. It is noted currently, subsidies that distort production and trade (with some exceptions) fall into the amber box. As reduction commitments are being increasingly sought for direct payments to agricultural producers, it is expected that some WTO countries will shift producer support to subsidy regimes that fall under the green box classification, thereby ensuring compliance with WTO requirements while still providing subsidies to domestic producers.

As direct support payments are phased out to meet WTO obligations, member countries may alter agriculture support programs so that they qualify as green box subsidies. If major agricultural producers like Canada, EU, and US, do shift agricultural subsidies into green box programs, will world markets be affected? Will consumer and producer welfare change? The authors work addresses these questions and is important for a number of reasons. First, this paper will improve understanding of the effect of green box programs on international commodity markets. Second, despite the difficult financial times for farmers around the world and the slowing global economy, the demand for improved environmental quality has not diminished. The authors suggest policy makers need to provide incentives to farmers so that they can meet societal environmental quality objectives, while still adhering to both domestic support and international trade agreement obligations in cost-effective ways.

This preliminary investigation of the wheat market modeled in this paper shows the effects for converting these subsidies into green box compliant programs. It is found that though these programs may not be intended to be production distorting, they may still increase supply, at least in the short run due to asset specificity and by making inputs more affordable. The authors make note that these finding provide caution to policy makers who expect green box compliant payments to reduce the supply of wheat. The authors findings from their hypothesis in actuality show the opposite occurring, an increase in production, thereby negating initial environmental policy objectives.
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What Developing Countries Want from the WTO

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By Alex McCalla

There is a very strong consensus among economists that developing countries have the most to gain from movements towards freer trade under the WTO. First, developing countries do have much to gain from general trade liberalization. Second, agricultural trade liberalization offers even greater gains than liberalization in other sectors because of the heavy dominance of agriculture in poor countries’ economies. Third, not all developing countries are poor, food-deficit, importing countries. An open-economy development strategy has historically paid off for developing countries and is still the best bet for the future.

Developing countries want several things from the WTO. First, a fair, open, transparent, and rules-based international trading environment they can trust. Second, access to rich countries’ markets, as well as those of each other, so that they have an opportunity to experience trade-led growth. Third, protection against bullying by large countries or large firms. Fourth, poor developing countries desperately want agricultural trade liberalization in the WTO and an effective end to the Multi-Fiber Agreement.
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Agriculture and Agricultural Incentives in China and India, 1995-2005

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By Kym Anderson

Agricultural policy over much of the 20th century in rich industrial counties (excluding those with a strong agricultural advantage) has been characterized by increasing import protection and other government assistance to farmers relative to other producers. In developing countries, by contrast, newly independent governments from the 1950’s sought to provide important protection to manufacturers and often taxed the exports of agricultural products.

This paper focuses on two such developing countries, namely, China and India. They are important not just because they are the world’s most populous countries, comprising 38 percent of the world’s people and more than one-fifth of the global agricultural GDP, but also because they have moved away from being rather closed to being increasingly open to international trade (and investment in China’s case). The opening up has stimulated rapid industrialization and expanded exports of labor-intensive manufactures from these densely populated countries, but it has also imposed structural adjustment pressures on agriculture. To what extent is this creating pressure on the governments of these two countries to assist their farmers, and what role if any are commitments to the World Trade Organization constraining those governments from following the agricultural protection growth trend of earlier industrializers?

The paper begins with an examination of China, because it is the larger economy and changes there have been more dramatic, before comparing briefly its experience with that of India. The final section concludes by exploring the likely effects on these countries’ agricultural trade of (a) further multilateral trade reform under the Doha and subsequent WTO negotiating rounds, and (b) further domestic reform such as reducing public under-investment in rural human capital and infrastructure.
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Food Safety and Quality: Regulations, Trade, and the WTO

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By Laurian Unnevehr and Donna Roberts

The objective of this paper is to examine the WTO’s record on food safety and quality issues in order to ascertain its strengths and weaknesses, particularly with respect to the primary objective of the Doha Agenda, which is helping developing countries. Thus, the authors begin by examining the performance of the SPS Agreement to date in reducing barriers to trade and mitigating disputes. Next, they consider the challenges ahead for the global trading system arising from the two trends mentioned above. Finally, the paper considers the potential for current negotiating proposals regarding changes to the SPS under the Doha Agenda to mitigate barriers to trade. Transparency has clearly improved under the SPS agreement.

The obligation to base regulations on scientific risk assessment clearly reduces the latitude for disingenuous use of SPS regulatory interventions. For many complaints, the SPS Agreement’s requirements to base measures on scientific risk assessments and to use the least trade restrictive means for achieving public health goals have led to the quick resolution of trade conflicts, particularly those involving transparently discriminatory measures.

There is no systematic accounting of negotiation of equivalence arrangements to date, but their use is not common in international food trade. In spite of considerable activity to develop equivalence arrangements, significant constraints remain.

The SPS Agreement’s endorsement of harmonization stems from repeated complaints by exporters that comply with divergent SPS measures substantially increases the transactions cost of trade. The impact of harmonization on trade appears to have been constrained as much by the lack of international standards as by normative considerations since the SPS Agreement came into force.

Two trends are creating continuing challenges for the SPS Agreement the first of these being rapid evolution of food safety regulation in developed countries during the 1990s.

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